Inflation, interest rates, the war in Ukraine and geopolitical tensions are among the issues that are shaping investment decision-making today.

Amid these political and economic uncertainties, investors around the world will remain cautious for the foreseeable future, Cerulli Associates says in its latest report, Global Markets 2022: Recovery, Growth, and Prosperity.

Nonetheless, the need to generate improved returns and diversify portfolios will remain guiding principles.

“In addition to the uncertain macro environment, asset managers’ decisions are also being shaped by long-running issues,” says André Schnurrenberger, Cerulli managing director, Europe. “These issues include downward pressure on fees, tightening profit margins, regulation, and competition from passive management strategies.”

Private markets to shine

The research and consulting firm expects key trends for the coming months to include thematic investing, greater digitalization, customization/tailored solutions, and the retailization of alternatives.

One area where increased investment is likely is private markets. In the United States, for example, findings suggest that clients with existing allocations to private markets are looking to expand from traditional private equity into growth and venture capital.

Nearly 85% of US-based asset managers expect increased demand for private equity mandates and 75% expect more demand for other private investment mandates.

In Europe, retail investors’ growing appetite for private assets is prompting some traditional asset managers and hedge funds to expand into this area. In Germany, inflows into real estate funds have been positive for seven consecutive years. This trend is likely to continue, given the inflationary environment and the potential of the asset class to generate stable income.

Plenty of opportunities

Cerulli believes asset managers should concentrate on improving capabilities and market access, as well as product innovation and diversification.

“Focusing on value-driven products tied to real-world issues such as climate change and digitization may allow managers to charge premium prices,” says Schnurrenberger. “In addition, some may consider expanding into wealth management. This option not only increases the opportunity to generate revenue, but also enables better control over the value chain and reduced distribution costs.”

Despite the current challenges in markets around the world, plenty of opportunities exist for asset managers – not least in serving investors seeking to counter inflation and volatility.

Retail investors are increasingly looking for customized products and services, thematic investing is becoming ever more popular, and the spread of technology is opening new areas of growth, Cerulli says.